The following information is for an automated machining plant. Plant information: Expected life: 3 years; MARR: 25%, tax rate: 40%; capital Gains, tcG, 20% Initial investment: o Purchase of equipment: $12.5 million (CCA rate 30%), salvage value $7.5 million Design, site preparation, and installation of equipment: $750,000 o Jigs and Dies: $300,000 (CCA Rate 30%, salvage value $50,000). O Building: $2.0 million (CCA Rate 20%, salvage value $1.5 million). o Land: $3.0 million, salvage value $3.5 million Revenues: Sales of $8.0 million in year 1, and increasing 10% per year thereafter. Expenses: o Labour: $2.0 million in year 1, increasing 5% per year thereafter. o Materials: $1.0 million in year 1, increasing 5% per year thereafter o Overheads: 60% of the total annual cost of Materials + Labour) Working capital: $1.0 million required in year 1 Financing: o Debt Ratio of 35%: Debt financing: o Term loan 60%; through the manufacturer at 12% per year for four years based on equal repayment of principal method, PLUS yearly interest on the unpaid yearly balance. Bonds. See next page for details. Bonds mature at the end of year 5. The bonds will be repurchased at the end of the project to maintain the Debt Ratio. Equity financing: o Retained earnings: $6.5 million o Common share (stock). See next page for details. The shares will be repurchased at the end of the project to maintain the Debt Ratio. a) Develop a Net Income Statement (only the statement please-no supporting information) b) Develop a Net Cash Flow statement (only the statement please-no supporting information) c) Use the PW criterion to decide if the company should undertake this project. Bonds Floatation Cost Rate Annual Interest Rate Bond Face Value at Maturity Bond Issued Price 1.90% 9.00% $1,000 $ 900 Common Shares Share Issued Price Floatation Cost Rate Annual Dividend per Share Share Market Price at year N $ 45 8.10% $ 1.25 $ 47 The following information is for an automated machining plant. Plant information: Expected life: 3 years; MARR: 25%, tax rate: 40%; capital Gains, tcG, 20% Initial investment: o Purchase of equipment: $12.5 million (CCA rate 30%), salvage value $7.5 million Design, site preparation, and installation of equipment: $750,000 o Jigs and Dies: $300,000 (CCA Rate 30%, salvage value $50,000). O Building: $2.0 million (CCA Rate 20%, salvage value $1.5 million). o Land: $3.0 million, salvage value $3.5 million Revenues: Sales of $8.0 million in year 1, and increasing 10% per year thereafter. Expenses: o Labour: $2.0 million in year 1, increasing 5% per year thereafter. o Materials: $1.0 million in year 1, increasing 5% per year thereafter o Overheads: 60% of the total annual cost of Materials + Labour) Working capital: $1.0 million required in year 1 Financing: o Debt Ratio of 35%: Debt financing: o Term loan 60%; through the manufacturer at 12% per year for four years based on equal repayment of principal method, PLUS yearly interest on the unpaid yearly balance. Bonds. See next page for details. Bonds mature at the end of year 5. The bonds will be repurchased at the end of the project to maintain the Debt Ratio. Equity financing: o Retained earnings: $6.5 million o Common share (stock). See next page for details. The shares will be repurchased at the end of the project to maintain the Debt Ratio. a) Develop a Net Income Statement (only the statement please-no supporting information) b) Develop a Net Cash Flow statement (only the statement please-no supporting information) c) Use the PW criterion to decide if the company should undertake this project. Bonds Floatation Cost Rate Annual Interest Rate Bond Face Value at Maturity Bond Issued Price 1.90% 9.00% $1,000 $ 900 Common Shares Share Issued Price Floatation Cost Rate Annual Dividend per Share Share Market Price at year N $ 45 8.10% $ 1.25 $ 47
